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Final Rule Regarding Procurement Requirements

Nutrition Services Division Management Bulletin
Purpose: Policy, Beneficial Information

To: School Nutrition Program Sponsors

Number: NSD-SNP-02-2008

Attention: Food Service Director, Business Official, District and County Superintendents

Date: March 2008

Subject: United States Department of Agriculture Final Rule Regarding Procurement Requirements for National School Lunch, School Breakfast, and Special Milk Programs

Reference: Title 7, Code of Federal Regulations, Sections 3016, 3019, 210.21, 215.14, 220.16; Final Rule from Federal Register Vol. 72, no. 210, October 31, 2007, p.61479; United States Department of Agriculture Policy Memo-SP-02-2007

This Management Bulletin summarizes the final rule updating the United States Department of Agriculture (USDA) regulations regarding procurement and the procurement of services offered by a food service management company (FSMC), which is a commercial enterprise or a nonprofit organization which is or may be contracted with by a School Food Authority to manage any aspect of the school food service.

You can find the final rule document at the U.S. Government Printing Office Web site at

This final rule makes changes in a school food authority’s responsibilities for ensuring proper procurement procedures and contracts, limits a school food authority’s use of nonprofit school food service account funds to only those costs resulting from proper procurements and contracts, and clarifies a State agency’s responsibility to review and approve school food authority procurement procedures and contracts. This final rule also amends the Special Milk Program and School Breakfast Program regulations to align the procurement and contract requirements with those in the National School Lunch Program.

The final rule:

  • Adopts five new definitions for “applicable credit,” “contractor,” “nonprofit school food service account,” “cost reimbursable contract,” and “fixed fee.”
  • Provides that State agencies and school food authorities may use their own procurement procedures which reflect applicable state and local laws and regulations, as long as procurements made with nonprofit school food service account funds meet the standards set forth in the program regulations and Sections 3016.36(b) through 3016.36(i), Section 3016.60 and Sections 3019.40 through 3019.48, as applicable, and in the applicable Office of Management and Budget Cost Circulars.
  • Requires State agencies to review and approve contracts and contract amendments between school food authorities and food service management companies prior to each contract’s execution to ensure that such contracts comply with all program requirements.
  • Allows State agencies to establish a due date for submission of the documents needed for pre-approval of a food service management contract. Failure of a school food authority to respond to these due dates would result in regulatory noncompliance, and the school food authority’s failure to correct this deficiency could result in withholding of reimbursement. We will notify you separately of these deadlines as appropriate.
  • Disallows all costs associated with contracts that do not meet the federal procurement requirements for the National School Nutrition Programs and are unallowable charges to the nonprofit school food service account.

Applicable to cost reimbursable contracts and cost reimbursable contracts with fixed-fee provisions:

  • Requires that allowable costs be paid to the contractor net of all discounts, rebates, and applicable credits; and that the contractor individually identify discounts, rebates, and applicable credits on all bills and invoices, and maintain relevant documentation. (Contractors are only required to identify the amount of each discount, rebate, or applicable credit on the bill or invoice, and whether the amount is a discount, rebate, or in the case of some other form of applicable credit, the nature of that credit).
  • Requires school food authorities to include specific directions in solicitations and contracts for reporting discounts, rebates, and applicable credits.
  • Allows school food authorities to choose between two cost reporting provisions for solicitation documents and contracts:
  1. The contractor identifies allowable and unallowable costs on billing documents.
  2. Requires the contractor to exclude unallowable costs from billing documents, and certify that only allowable costs are submitted for paymnet, and records have been kept that identify unallowable costs.

Regardless of the cost provision chosen, contractors are required to report discounts, rebates and other applicable credits, and school food authorities are required to limit expenditures of nonprofit school food services account funds to net allowable costs.

If you have questions, please contact the contract specialist assigned to your county, as listed on the Form Caseload, available under the Applications, Download Forms section in the Child Nutrition Information and Payment System, or send your questions by e-mail to

Questions:   School Food Service Contracts Unit | 916-319-0636
Last Reviewed: Tuesday, February 3, 2015

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